12 Damaging Issues with Globalization

12 Damaging Issues with Globalization

Globalization is very much looked on as being an unmitigated �good� by economists. Unfortunately, economists seem to be gu also tend to look at results too narrowly�from the point of view of a business that can expand, or a worker who has plenty of money, even though these users are not typical. In real life, businesses are facing increased competition, and the worker may be laid off because of greater competition.

The following is a list of reasons why globalization is not living up to what was promised, and is, in fact, a very major problem.

1. Globalization uses up finite resources more quickly. As an example, China joined the world trade organization in December 2001. In 2002, its coal use began rising rapidly (Figure 1, below).

Figure 1. China�s energy consumption by source, based on BP�s Statistical Review of World Energy data.

In fact, there is also a huge increase in world coal consumption (Figure 2, below). India�s consumption is increasing as well, but from a smaller base.

Figure 2. World coal consumption based on BP�s 2012 Statistical Review of World Energy

2. Globalization increases world carbon dioxide emissions. If the world burns its coal more quickly, and does not cut back on other fossil fuel use, carbon dioxide emissions increase. Figure 3 shows how carbon dioxide emissions have increased, relative to what might have been expected, based on the trend line for the years prior to when the Kyoto protocol was adopted in 1997.

Figure 3. Actual world carbon dioxide emissions from fossil fuels, as shown in BP�s 2012 Statistical Review of World Energy. Fitted line is expected trend in emissions, based on actual trend in emissions from 1987-1997, equal to about 1. 0% per year.

3. Globalization makes it virtually impossible for regulators in one country to foresee the worldwide implications of their actions. Actions which would seem to reduce emissions for an individual country may indirectly encourage world trade, ramp up manufacturing in coal-producing areas, and increase emissions over all. See my post Climate Change: Why Standard Fixes Don�t Work.

4. Globalization acts to increase world oil prices.

Figure 4. World oil supply and price, both based on BP�s 2012 Statistical Review of World Energy data. Updates to 2012 added based on EIA price and supply data and BLS CPI urban.

The world has undergone two sets of oil price spikes. The first one, in the 1973 to 1983 period, http://nadaconsulting.net/?p=70243 occurred after US oil supply began to decline in 1970 (Figure 4, above and Figure 5 below).

Figure 5. US crude oil production, based on EIA data. 2012 data estimated based on partial year data. Tight oil split is author�s estimate based on state distribution of oil supply increases.

After 1983, it was possible to bring oil prices back to the 30 to 40 barrel range (in 2012), compared to the 20 barrel price (in 2012) available prior to 1970. This was partly done partly by ramping up oil production in the North Sea, Alaska and Mexico (sources which were already known), and partly by reducing consumption. The reduction in consumption was accomplished by cutting back oil use for electricity, and by encouraging the use of more fuel-efficient cars.

Now, since 2005, we have high oil prices back, but we have a much worse problem. The reason the problem is worse now is partly because oil supply is not growing very much, due to limits we are reaching, and partly because demand is exploding due to globalization.

If we look at world oil supply, it is virtually flat. The United States and Canada together provide the slight increase in world oil supply that has occurred since 2005. Otherwise, supply has been flat since 2005 (Figure 6, below). What looks like a huge increase in US oil production in 2012 in Figure 5 looks much less impressive, when viewed in the context of world oil production in Figure 6.

Figure 6. World crude oil production based on EIA data. *2012 estimated based on data through October.

Part of our problem now is that with globalization, world oil demand is rising very rapidly. Chinese buyers purchased more cars in 2012 than did European buyers. Rapidly rising world demand, together with oil supply which is barely rising, pushes world prices upward. This time, there also is no possibility of a dip in world oil demand of the type that occurred in the early 1980s. Even if the West drops its oil consumption greatly, the East has sufficient pent-up demand that it will make use of any oil that is made available to the market.

Adding to our problem is the fact that we have already extracted most of the inexpensive to extract oil because the �easy� (and cheap) to extract oil was extracted first. Because of this, oil prices cannot